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Consumption and credit among the poor: assessing

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Title: Consumption and credit among the poor: assessing


1
Consumption and credit among the poor assessing
parallel market features and behavior towards
cash-consumer credit among low income households
in UruguayCecilia RosselNovember 17th, 2014
2
Consumer credit in LA
  •  
  • Consumer credit access has been growing in most
    of Latin American households for the last two
    decades
  • Part of this process relates to the expansion of
    the banking system and credit cards, which
    derived in the financial inclusion of a growing
    middle class
  • But the growth in consumer credit is also
    explained by the opportunity for accessing these
    type of credit that non-banking financial
    institutions (including cooperatives, retail
    stores, cash credit institutions) started
    providing for lower income and poor families

3
Objectives
  • Describe the consumer credit market and its
    significance in Uruguay, by focusing on the micro
    dynamics of access to consumer credit and
    consumer credit borrowing in low income families.
  • Three descriptive questions
  • (i) what are the main features of the formal and
    informal cash-consumer credit market in Uruguay
    and how does it work?
  • (ii) what are the attitudes and practices of the
    poor population towards consumption and credit?
  • (iii) what are the new risks and vulnerabilities
    if any- that emerge from taking credits through
    this market?.

4
Methods data (i)
  • Secondary information
  • Mystery clients strategy
  • Experts interviews
  • In-depth interviews

5
Main results
  • A growing market with aggressive strategies to
    attract low income and poor clients, not always
    transparent, that seems to be achieving its goals
  • A precarious access to financial products in
    financially excluded population
  • A strong association of NBFI credit market with
    low income and poor population (with a monthly or
    weekly link in all cases!)
  • A rational/self-limiting discourse but with high
    levels of multiborrowing and, in some cases,
    over-indebtedness
  • Solidarity and networks as a by-pass to the
    obstacles imposed by the credit score-card and
    the debtor list
  • Over-indebtedness as a stressful/trapping
    situation, that is coped or at least faced-
    through different strategies

6
Policy implications challenges
  • Regulation challenges regarding
  • information provided to consumers
  • practices of adding benefits
  • reporting to governments authorities
  • interest rates credit conditions
  • Financial education to low income and poor
    families, including basic tips for understanding
    credit and guides for managing financial
    situation and avoid over-indebtedness
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